Financial regulators increasingly skeptical of Bitcoin

Watchdog warns: "If no one accepts bitcoins, bitcoins will become worthless."

Two financial regulatory bodies have issued new Bitcoin-related warnings and sanctions this week.

The first came from FINRA, the financial industry’s self-regulatory organization. It published an investor’s note on Tuesday saying that “selling and using bitcoins carry numerous risks.” The second warning came Monday from a Texas state financial regulator. That document is an emergency cease-and-desist order against Balanced Energy, an energy firm taking investment in bitcoins.

FINRA’s warning declared:

Digital currency such as Bitcoin is not legal tender. No law requires companies or individuals to accept bitcoins as a form of payment. Instead, Bitcoin use is limited to businesses and individuals that are willing to accept bitcoins. If no one accepts bitcoins, bitcoins will become worthless.

Platforms that buy and sell bitcoins can be hacked, and some have failed. In addition, like the platforms themselves, digital wallets can be hacked. As a result, consumers can—and have—lost money.

FINRA spokesperson George Smaragdis told Ars that the MtGox’s recent bankruptcy filing and the Security and Exchange Commission’s trading suspension (PDF) of Imogo Mobile Technologies last month lead to this new warning. (The suspension lasted two weeks, and it was for testing of a new mobile Bitcoin platform).

“Risks inherent to the use of Bitcoin”

The Texas State Securities Board's five-page order (PDF) is believed to be the first such state-level order nationwide. It's against Balanced Energy, a Dallas-area oil-and-gas firm that was soliciting investments in Bitcoin,

The order notes, among other securities and financial violations, Balanced Energy intentionally failed to disclose the “nature of the risks associated with the use of Bitcoin to purchase working interests, including the risks inherent to the use of Bitcoin and the risk that fluctuation in the price of the digital currency may affect business operations.”

The firm did not respond immediately to Ars’ request for comment.

Last month, the day after MtGox declared bankruptcy in Japan, Texas Securities Commissioner John Morgan cautioned investors away from Bitcoin.

“Although digital currencies such as Bitcoin are often touted as a sophisticated, online alternative to traditional currencies, investors should realize these currencies are not tangible, they are not issued by a government, and are not currently subject to traditional regulation or monetary policy,” Morgan said in a statement on February 25.

Hey, welcome to the reality of economics! My favorite simple explanation of how it all works was a Dilbert comic. Dogbert: "Why do you collect stamps?" Dilbert: "Because they're valuable." Dogbert: "Why are they valuable?" Dilbert: "Because people collect them."

Concluding that Bitcoin should be shut down because some company in Asia went bust is just silly.

You do not go crying that USD is a scam after sending money to a Nigerian prince.

The company was soliciting investments from the public. That puts s ton of requirements for disclosure on them. They did not live up to them. You are free to buy into BTC on your own, but once you advertise them as a security, you get the regulatory hammer.

This was not a ban on BTC in TX, but a ban on a specific company acting as an intermediary.

That is the difference between legal tender and not. US currency is legal tender in the US, which means that if I owe you money and you wish to compel me using any american court to pay up, you are required to accept US dollars as payment of the debt. You are allowed to accept anything you want (euros, bitcoin, chickens, monopoly money, zimbabwan dollars), but you are obligated to accept USD. The same is generally true for other government issued currencies in their respective countries.

So it isn't just a tautology. It is a real difference between bitcoin and government backed currency that a staggering number of people don't understand.

One can only wonder how reiterating the underpinning of all currency (gold standard or not), could possibly be helpful in this situation.

Though, to me, this explains a lot about how the financial crisis of 2008 happened. While these guys should have been actually *regulating*, they were probably busy drafting memos about how Beinie Babies are not legal tender.

You missed the part where banks were actively committing fraud in a approving and selling subprime loans.

That is the difference between legal tender and not. US currency is legal tender in the US, which means that if I owe you money and you wish to compel me using any american court to pay up, you are required to accept US dollars as payment of the debt. You are allowed to accept anything you want (euros, bitcoin, chickens, monopoly money, zimbabwan dollars), but you are obligated to accept USD. The same is generally true for other government issued currencies in their respective countries.

So it isn't just a tautology. It is a real difference between bitcoin and government backed currency that a staggering number of people don't understand.

The problem being that there is NO global legal tender. They are all just the same as bitcoin when you get down to brass tacks. As an American, I reject all Canadian dollars given to me as change. They are worthless to me.

That is the difference between legal tender and not. US currency is legal tender in the US, which means that if I owe you money and you wish to compel me using any american court to pay up, you are required to accept US dollars as payment of the debt. You are allowed to accept anything you want (euros, bitcoin, chickens, monopoly money, zimbabwan dollars), but you are obligated to accept USD. The same is generally true for other government issued currencies in their respective countries.

So it isn't just a tautology. It is a real difference between bitcoin and government backed currency that a staggering number of people don't understand.

This has't let any number of other government backed currencies to become worthless throughout history. While you are technically correct, requiring something by law does not make that thing immutable.

Just a note: Those who are not familiar with FINRA, although not a government agency, when they start looking at something 'financial' and start issuing warnings its generally not a good sign for what ever the warning is against. FINRA is a very powerful organization and just about everything financial from large retailers and corporations to the stock market and government listens to them.

That is the difference between legal tender and not. US currency is legal tender in the US, which means that if I owe you money and you wish to compel me using any american court to pay up, you are required to accept US dollars as payment of the debt. You are allowed to accept anything you want (euros, bitcoin, chickens, monopoly money, zimbabwan dollars), but you are obligated to accept USD. The same is generally true for other government issued currencies in their respective countries.

So it isn't just a tautology. It is a real difference between bitcoin and government backed currency that a staggering number of people don't understand.

The same applies to credit cards, and they seem to have done well. This is just another method of payment and I'm sure that if it takes off we will see it regulated just as much as anything else.

This argument is pretty weak considering that when you use a credit card, you are ordering your card-issuing bank to electronically transfer monetary worth (in USD) to the retailer or company you are paying. The same is not true of Bitcoin. Credit cards are a means of transferring money that is inherently the USD (in the USA, obviously), whereas Bitcoins are supposedly a currency in and of themselves.

That is the difference between legal tender and not. US currency is legal tender in the US, which means that if I owe you money and you wish to compel me using any american court to pay up, you are required to accept US dollars as payment of the debt. You are allowed to accept anything you want (euros, bitcoin, chickens, monopoly money, zimbabwan dollars), but you are obligated to accept USD. The same is generally true for other government issued currencies in their respective countries.

So it isn't just a tautology. It is a real difference between bitcoin and government backed currency that a staggering number of people don't understand.

The same applies to credit cards, and they seem to have done well. This is just another method of payment and I'm sure that if it takes off we will see it regulated just as much as anything else.

Incorrect. Credit cards are a payment intermediary, not legal tender. No one is ever required to take credit. But if someone hands you cash dollars, you are required to take it.

That is the difference between legal tender and not. US currency is legal tender in the US, which means that if I owe you money and you wish to compel me using any american court to pay up, you are required to accept US dollars as payment of the debt. You are allowed to accept anything you want (euros, bitcoin, chickens, monopoly money, zimbabwan dollars), but you are obligated to accept USD. The same is generally true for other government issued currencies in their respective countries.

So it isn't just a tautology. It is a real difference between bitcoin and government backed currency that a staggering number of people don't understand.

The problem being that there is NO global legal tender. They are all just the same as bitcoin when you get down to brass tacks. As an American, I reject all Canadian dollars given to me as change. They are worthless to me.

Try doing that in Canada, with a Canadian debt. They are mandatory legal tender in their home countries.

That is the difference between legal tender and not. US currency is legal tender in the US, which means that if I owe you money and you wish to compel me using any american court to pay up, you are required to accept US dollars as payment of the debt. You are allowed to accept anything you want (euros, bitcoin, chickens, monopoly money, zimbabwan dollars), but you are obligated to accept USD. The same is generally true for other government issued currencies in their respective countries.

So it isn't just a tautology. It is a real difference between bitcoin and government backed currency that a staggering number of people don't understand.

The problem being that there is NO global legal tender. They are all just the same as bitcoin when you get down to brass tacks. As an American, I reject all Canadian dollars given to me as change. They are worthless to me.

As someone who isn't a citizen of Bitland, I reject all Bitcoins given to me as change. They are all worthless to me.

That is the difference between legal tender and not. US currency is legal tender in the US, which means that if I owe you money and you wish to compel me using any american court to pay up, you are required to accept US dollars as payment of the debt. You are allowed to accept anything you want (euros, bitcoin, chickens, monopoly money, zimbabwan dollars), but you are obligated to accept USD. The same is generally true for other government issued currencies in their respective countries.

So it isn't just a tautology. It is a real difference between bitcoin and government backed currency that a staggering number of people don't understand.

The problem being that there is NO global legal tender. They are all just the same as bitcoin when you get down to brass tacks. As an American, I reject all Canadian dollars given to me as change. They are worthless to me.

That's why contracts are negotiated and there are companies dedicated to being the middleman in such transactions. A Canadian can get their canuckbucks translated to real money. The company in the middle is happy to do this. They have the knowledge that someone wants the currency and that the risk involved can be fairly reliably calculated and managed (thus hedging). Bitcoins do not have this at all, there's no way to manage risk as there is zero backing.

That is the difference between legal tender and not. US currency is legal tender in the US, which means that if I owe you money and you wish to compel me using any american court to pay up, you are required to accept US dollars as payment of the debt. You are allowed to accept anything you want (euros, bitcoin, chickens, monopoly money, zimbabwan dollars), but you are obligated to accept USD. The same is generally true for other government issued currencies in their respective countries.

So it isn't just a tautology. It is a real difference between bitcoin and government backed currency that a staggering number of people don't understand.

The problem being that there is NO global legal tender. They are all just the same as bitcoin when you get down to brass tacks. As an American, I reject all Canadian dollars given to me as change. They are worthless to me.

Try doing that in Canada, with a Canadian debt. They are mandatory legal tender in their home countries.

Exactly. No one is required to accept bitcoins but businesses must accept the legal tender of the country they operate in.

Business are allowed to barter and accept payment in whatever they like but they MUST accept the legal tender. That is a big difference when setting a floor on the value of a currency.

Screaming that the sky is falling does not indeed make it fact that the sky is falling.

However I do agree that there should be some clear financial rules when using virtual currency within a local jurisdiction (national/state/local). Simply sticking your head in the sand and saying it doesn't exist, while one way of handling it, doesn't really solve the problem.

I'm sorry that it's an uncomfortable thought, but money is only as "real" as we think it is. That is it's only worth.

Just because I am obligated to accept USD here in the States, that has nothing to do with how MUCH I must value it against goods and services. I can charge 400000 times what you think something is worth in dollars. Or I can charge one goat. I MUST accept the ridiculous number in dollars. But I could also just take te goat.

This type of argument is especially true now that we have gone "standardless". The value of the dollar is pegged against exactly nothing.

What I find rather illuminating is that despite every negative said about bitcoin; that it's a ponzi scheme, that it's going to die, that it's worthless, that people who are involved in it are idiots, but, but, but...

It's still going and it's not dying.

Even if governments hate it, pass laws against it, stand up on high and proclaim "thou shalt not use bitcoin!" it will still be around. The longer it's around the more stable it will get.

I don't own any bitcoins but I'm not blind enough to ignore the fact that something is growing and being used despite those that proclaim that even though it can't possibly be useful that it IS useful to somebody somewhere, and in fact a lot of people ARE finding it useful. Even if the uses are initially for stuff that is illegal.

Who knows, maybe it WILL all die, but just because you believe something is true does not make it so.

That is the difference between legal tender and not. US currency is legal tender in the US, which means that if I owe you money and you wish to compel me using any american court to pay up, you are required to accept US dollars as payment of the debt. You are allowed to accept anything you want (euros, bitcoin, chickens, monopoly money, zimbabwan dollars), but you are obligated to accept USD. The same is generally true for other government issued currencies in their respective countries.

So it isn't just a tautology. It is a real difference between bitcoin and government backed currency that a staggering number of people don't understand.

The same applies to credit cards, and they seem to have done well. This is just another method of payment and I'm sure that if it takes off we will see it regulated just as much as anything else.

Incorrect. Credit cards are a payment intermediary, not legal tender. No one is ever required to take credit. But if someone hands you cash dollars, you are required to take it.

Actually credit cards are a type of unsecured loan which the card holder agrees to payoff to the issuer (lender) for making purchases with borrowed money.

What I find rather illuminating is that despite every negative said about bitcoin; that it's a ponzi scheme, that it's going to die, that it's worthless, that people who are involved in it are idiots, but, but, but...

It's still going and it's not dying.

Even if governments hate it, pass laws against it, stand up on high and proclaim "thou shalt not use bitcoin!" it will still be around. The longer it's around the more stable it will get.

I don't own any bitcoins but I'm not blind enough to ignore the fact that something is growing and being used despite those that proclaim that even though it can't possibly be useful that it IS useful to somebody somewhere, and in fact a lot of people ARE finding it useful. Even if the uses are initially for stuff that is illegal.

Who knows, maybe it WILL all die, but just because you believe something is true does not make it so.

Reminds me of Netcraft proclaiming that BSD is dead....

Bitcoin is surviving as an object of speculation. It's failing as a currency, utterly and completely.

It's failing as a currency *because* it is an object of speculation. People who claim that Bitcoin is doing great because the value is increasing fundamentally do not understand this. A stock increasing in value is a good thing. A currency increasing is not. For a currency to function, in needs to be *stable*.

No one in their right mind would borrow 40 BC over a 5 year term to buy a car. And even if they would, no one would lend 40 BC on a 5 year note. Because no one can predict how much a BC will be worth in one year, much less 5 years. This is why it is failing as currency.

What I find rather illuminating is that despite every negative said about bitcoin; that it's a ponzi scheme, that it's going to die, that it's worthless, that people who are involved in it are idiots, but, but, but...

It's still going and it's not dying.

Even if governments hate it, pass laws against it, stand up on high and proclaim "thou shalt not use bitcoin!" it will still be around. The longer it's around the more stable it will get.

I don't own any bitcoins but I'm not blind enough to ignore the fact that something is growing and being used despite those that proclaim that even though it can't possibly be useful that it IS useful to somebody somewhere, and in fact a lot of people ARE finding it useful. Even if the uses are initially for stuff that is illegal.

Who knows, maybe it WILL all die, but just because you believe something is true does not make it so.

Reminds me of Netcraft proclaiming that BSD is dead....

I don't think Bitcoin is going to die (at least not soon). I mostly get annoyed when it is touted as something it is not.

Too many people do not understand that there is a lot of protection given to them when they use regulated currency and services. Bitcoin wants all the positive experiences of being currency without all that regulation that backs up currency.

Paypal is the same, they want to be thought of as a bank without needing to do what banks have to do to protect their customers. That they managed to do shows the power of PR and goodwill.

I expect Bitcoin will do the same thing unless enough value crashes and bitcoin losses turn the PR/hype around.

What I find rather illuminating is that despite every negative said about bitcoin; that it's a ponzi scheme, that it's going to die, that it's worthless, that people who are involved in it are idiots, but, but, but...

It's still going and it's not dying.

People are holding onto their BTC hoping it'll continue to be worth anything, not spending it.

“Although digital currencies such as Bitcoin are often touted as a sophisticated, online alternative to traditional currencies, investors should realize these currencies are not tangible, they are not issued by a government, and are not currently subject to traditional regulation or monetary policy,”

Platforms that buy and sell bitcoins can be hacked, and some have failed. In addition, like the platforms themselves, digital wallets can be hacked. As a result, consumers can—and have—lost money.

But other financial platforms can't be hacked? I see you've never heard of a place called Target...

Quote:

“Although digital currencies such as Bitcoin are often touted as a sophisticated, online alternative to traditional currencies, investors should realize these currencies are not tangible, they are not issued by a government, and are not currently subject to traditional regulation or monetary policy,” Morgan said in a statement on February 25.

Bitcoin isn't meant to replace US tender, it has a very specific purpose, and it seems the general public still misunderstands that. If the explosion of available altcoins (or even just the article count on such coins; or even Arscoins!) can tell us anything, its that the concept of a cryptocurrency is not going away.

I don't think anyone that understands bitcoin has ever touted it as an alternative to traditional currencies, because traditional currencies can't fill the same role as bitcoin (just as bitcoin can't serve the same role as traditional currency).

The problem being that there is NO global legal tender. They are all just the same as bitcoin when you get down to brass tacks. As an American, I reject all Canadian dollars given to me as change. They are worthless to me.

Ya, if only there were some sort of global system of regulated and insured financial institutions with hundreds of thousands of locations where you could easily exchange Canadian dollars for American dollars in a matter of minutes at an easily verified and recognized rate.

That would be sweet. But sadly, without that, Canadian dollars are just like Bitcoins.

The same applies to credit cards, and they seem to have done well. This is just another method of payment and I'm sure that if it takes off we will see it regulated just as much as anything else.

Credit cards are pretty advantageous for the user, though. Someone gets my number and makes bad charges, I'm not responsible for boo. Someone mischarges me, like Hulu Plus did recently, I can sic a big nasty corporation (Chase) on them and get satisfactory results within a day. I route my whole life thorough it and get hundreds of dollars of Amazon credits, and just pay it off each month so no interest. Ain't no downside, Jackson.

Platforms that buy and sell bitcoins can be hacked, and some have failed. In addition, like the platforms themselves, digital wallets can be hacked. As a result, consumers can—and have—lost money.

But other financial platforms can't be hacked? I see you've never heard of a place called Target...

Quote:

“Although digital currencies such as Bitcoin are often touted as a sophisticated, online alternative to traditional currencies, investors should realize these currencies are not tangible, they are not issued by a government, and are not currently subject to traditional regulation or monetary policy,” Morgan said in a statement on February 25.

Bitcoin isn't meant to replace US tender, it has a very specific purpose, and it seems the general public still misunderstands that. If the explosion of available altcoins (or even just the article count on such coins; or even Arscoins!) can tell us anything, its that the concept of a cryptocurrency is not going away.

I don't think anyone that understands bitcoin has ever touted it as an alternative to traditional currencies, because traditional currencies can't fill the same role as bitcoin (just as bitcoin can't serve the same role as traditional currency).

You cannot attempt to tie an increase in availability to success with Bitcoin and then tout its long-term future when its programmed monetary policy is designed to make it less available over time. There's certainly a use for such a thing, but that use isn't as a viable currency.

Hey, welcome to the reality of economics! My favorite simple explanation of how it all works was a Dilbert comic. Dogbert: "Why do you collect stamps?" Dilbert: "Because they're valuable." Dogbert: "Why are they valuable?" Dilbert: "Because people collect them."

Gold is a real item, and has a value far beyond monetary. It is one of the most malleable metals in existence, allowing it to be used in a variety of aesthetically pleasing and inventive ways. It also has many properties that make it HIGHLY useful as a conductor. And those to name just two things that give the substance intrinsic value above monetary considerations.

Bitcoins have no intrinsic value. They are alphanumeric values represented by in a number of magnetic states residing on the hard drive of some computer and have no other existence and no other intrinsic value. Scan the hard drive with a decent enough magnet, and you don't have any bitcoins anymore. They simply cease to exist anywhere.

Even paper money has some intrinsic value as tinder for a fire (or art objects), which is a hell of a lot more intrinsic value than all of the bitcoins ever "made".